Hedge fund Metacapital Management soared 28% in the first half, with half of that return coming during the second quarter, the worst for the hedge fund industry in a decade.

The $150 million New York-based firm profited from government-backed debt in the first six months of the year, founder Deepak Narula wrote to investors. The firm, which debuted in 2008 with Narula, a former mortgage-bond trader at Lehman Brothers, at the helm, posted an eye-popping 125% return last year, Bloomberg News reports.

Now, however, the firm is girding itself for a potential “one-time amnesty” term change by Fannie Mae and Freddie Mac, which could save homeowners a whopping $50 billion a year through refinancing. The “only losers” in such a scenario “are the security holders of mortgages that are paying above-market interest rates,” Narula wrote.

To protect itself from such a refinancing wave, Narula said that Metacapital was buying lower-coupon mortgage bonds to hedge its bets on the inverse interest-only tranches of collateralized mortgage obligations that earned the firm its big returns in the second quarter.

Sponsored Content

Kelly RodriquesAs more investors look to diversify, many are beginning to use retirement funds to invest in alternative assets such as private equity and real estate. Kelly Rodriques, CEO & President of PENSCO Trust Company, explains how companies can connect with those looking to use their retirement accounts in a different way. Read more…

Editor's Note

StreetWise Partners, a non-profit organization that works with low-income individuals to help them overcome employment barriers, raised over $275,000 at the 2015 Raising the Ante Charity Poker Tournament and Casino Event last Wednesday evening at Capitale. Here are some photos from the event. Read more…